Thought Leadership

Prorating Pay When a Salaried Employee is Terminated for Cause

Published in New Hampshire Business ReviewQ. I own a business in New Hampshire. I recently fired one of my managers because he engaged in abusive behavior to some employees. His approach to managing employees by yelling and swearing at them was simply not acceptable. We had counseled the manager on previous occasions about acceptable management styles but his behavior escalated instead of improving. I fired him on Monday after another incident with an employee, and he is now claiming that, as a salaried employee, he should have been paid through the entire week instead of just for Monday. Can he possibly be right about that?

A. Probably not. Under New Hampshire law, a salaried employee is entitled to be paid for the entire pay period if the employee works any time during the pay period with very limited exceptions. In January of 2005, this law was specifically revised to provide that an employer may prorate to a daily basis when a salaried employee is “terminated for cause.” RSA 275:43-b, II. Unfortunately, the term “for cause” is not defined in the law so there is lack of clarity about what would constitute “for cause” to justify the proration of the final pay to a daily basis.

There have been several decisions by the New Hampshire Department of Labor, including one decision as late as November of 2012, in which the Department provides guidance on how they will evaluate a situation such as this. In the November 2012 decision, a salaried employee was terminated for poor performance and paid only through the last day of work (and not for the entire pay period.) The employee had previously received a written suspension notice but that notice did not notify the employee that his actions could result in termination. The employee sought payment for the entire pay period. In ruling in favor of the employee, the Department found that because the employee did not receive notice, express or fairly implied, that his poor performance could be grounds for termination, the employer could not terminate the employee “for cause” for the purpose of prorating his salary to the date of termination.

The Department pointed to a standard established by a New Hampshire Superior Court case where the court stated that “an employer may dismiss an employee ‘for cause’ if the employee engages in misconduct. An employee’s misconduct must comprise reasonable grounds for termination, and the employee must have received notice, express or fairly implied, that such misconduct could be grounds for termination.” The superior court decision also cited other cases that held that an employer must offer an employee a proper reason for a “for cause” dismissal. The court stated that, in reviewing a “for cause” dismissal, it would focus not on whether the employee actually committed misconduct, but rather on whether the employer reasonably determined it had cause to terminate.

Applying that reasoning to your situation, since you counseled the employee about his abusive managerial style and further, since you specifically told him that if the behavior continued, he could be terminated, it would appear that you have met the test of a “for cause” termination which would justify the proration of your employee’s pay to the last day of work. It would be even better if you memorialized your counseling sessions in a written document in the employee’s personnel file but the Department and superior decision both leave open that the notice to the employee can be “express or fairly implied,” and there does not appear to be a hard and fast rule about written notice. Of course, the best route to take for misconduct situations is for an employer to provide an employee with notice that the behavior is unacceptable and, if it gets to that point, written notice that any continued poor performance will be grounds for termination. Keep in mind that there may be some situations of gross misconduct, such as an assault or sexual harassment, where advance written notice may not be needed in order to justify a “for cause” termination sufficient to justify the proration of a salaried employee’s pay to a daily basis. In such a situation, the Department or a court would likely find that the employee had implied notice, either from a handbook, training or generally recognized workplace standards, that such behavior would result in a “for cause” termination. Whether or not your situation of an abusive manager would have justified the daily pay proration even without the prior warning is an open question but, you did this right; you addressed the situation when it arose, you counseled the employee about what your expectations were, and you gave clear notice that if the behavior continued it would be grounds for termination.

Linda Johnson serves as co-chair for both the Litigation Department and Education Law Group at the law firm of McLane, Graf, Raulerson & Middleton, Professional Association. Linda can be reached at [email protected] or (603) 628-1267. The McLane Law Firm is the largest full-service law firm in the state of New Hampshire, with offices in Concord, Manchester and Portsmouth as well as Woburn, Massachusetts.

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